What’s the Risk?

1.Nutjobs with nothing to lose. The Russian bombings are a stark warning that Putin will be challenged at Sochi. Blurred lines will take on more meaning than when last in the news.

2. Drought. Last year we marked several of the characteristics for potential problems. Weak Peruvian anchovy harvest, rain on PGA Tour southern swing and strong surf at Maverick's. Early Spring flooding proved plenty to avert a catastrophe. We will be watching, however, the situation in California is already dire. Reservoirs that should be filling are still dropping. Many are barely at 30% capacity and the Tahoe snow pack is thin. If the variable missing from inflation traction has been capacity reduction (as we Abundance Theory crazies have suggested), then fruit, vegetables and cattle may change the data.

3. Loss of market function. Buying along with the Fed is much easier than returning to participant backed funding, especially after regulatory gutting of the desks. An orderly downdraft in Notes could quickly morph into a "no bid" slide that harms confidence and damages global capital markets. The "Street" the Fed is exiting to is not the one it set out to save in 2008.

4. The polarity of the Sun turns out to be the major determinant of S&P prices.